Adept Technology CEO Discusses F1Q2011 Results – Earnings Call Transcript

Nov. 4.10 | About: Adept Technology, (ADEP)

Adept Technology, Inc. (NASDAQ:ADEP)

F1Q2011 (Qtr End 09/25/10) Earnings Conference Call

November 4, 2010 5:00 PM ET

Executives

Lisa Cummins – VP, Finance & CFO

John Dulchinos – President & CEO

Analysts

Chris Thomson – MindShare Capital

Good day, ladies and gentlemen; thank you for standing by. Welcome to the Adept Technology first quarter 2011 financial results conference call. During today’s presentation, all participants will be in a listen-only mode.

Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded Thursday, November 4, 2010.

At this time I would like to turn the conference over to Lisa Cummins, Chief Financial Officer. Please go ahead.

Lisa Cummins

Good afternoon everyone and thank you for joining us. As we begin today’s call, let me remind you that during the course of this conference call, we may make certain remarks regarding Adept’s expectations as to future events and future financial and operational performance, plans and prospects of the company, all of which are based on the company’s position as of today, November 4, 2010.

Any such forward-looking statements involve a number of risks and uncertainties, and the company’s actual results could differ materially from those expressed in any of these forward-looking statements for a variety of reasons, including the risks described in our press release and in our Annual Report on 10-K for the fiscal year ended June 30, 2010, as well as the risks described in the company’s other SEC filings. No one should assume that any forward-looking statements made by the company remain consistent with our expectations after the date that the forward-looking statements are made.

Certain financial information that we review on today’s conference call is presented on a non-GAAP basis. The most directly comparable GAAP information and reconciliation between the non-GAAP and GAAP figures is provided in our fiscal first quarter 2011 press release, which has been furnished to the SEC on Form 8-K. The press release and all financial, statistical or operational information referred to in this conference call, including the GAAP reconciliation and explanations discussed above, is available on the Investor Relations section of our website. Following our introductory comments, we will open the call to take your questions.

I would now like to turn the call over to John Dulchinos for some opening remarks.

John Dulchinos

Thank you, Lisa, and good afternoon everyone. Q1 was a strong operational quarter for Adept, as we executed on a number of initiatives. Revenue for Q1 grew 25% annually, while orders grew 37% compared with the same period last year. Sequentially, revenues declined 12%, while orders remained flat compared with last quarter. This is in line with normal seasonal trends. Despite the seasonal softness in Q1 (packing) revenues were down only modestly from the previous quarter, and we saw an increase in bookings from the German industrial market, which indicates that the traditional market for Adept may be beginning to recover. A major highlight for the quarter was the integration of the Mobile Robots business, which we acquired at the end of June. We have quickly validated that there is very exciting synergy within market and among customers and have already identified several new opportunities in the logistics, medical, and consumer electronics industries, among many others. We believe there are multiple opportunities to deploy applications incorporating Mobile Robots technology with Adept’s (inaudible) into a variety of industries even beyond our traditional target market.

As a result of its size, Mobile Robots was at a disadvantage in gaining sales momentum with large commercial customers. We have begun to leverage our established national sales infrastructure and global customer base. We are confident we can accelerate adoption, acceptance by new and existing customers, and in particular OEMs demanding more comprehensive and flexible solutions in complex peopled environments.

OEM tends to be long term customers with larger and more stable order patterns. Over the long term, winning this type of business can ultimately reduce the seasonality of our typical lumpy revenue stream. Margins from this business are also higher than the corporate average, and with improved efficiency and increased sales in the coming years, will have a positive effect on our overall margins.

As expected, revenues from disk drive market declined somewhat, as this is a notoriously cyclical industry. The disk drive market is characterized by peaks and troughs. During the economic downturn, we monitored the market closely and subsequently locked up important design wins. As a result, we reaped the benefits by winning significant orders by some of the industry’s top manufacturers when the market turned. We will employ the same strategy during what we believe will be a two to three quarter slowdown, expecting the disk drive sales to return to growth at that time.

Gross margin improved during the quarter, given the change in product mix. Including the relative strength in our other verticals beyond disk drive, increased service revenues drove part of increase in margin, an indication that more of our equipment is being utilized out in the field. We believe margins will remain stable in Q2. In packaging, we experienced a typical summer slowdown, as much of our sales are in Europe. Quarter shorts were in line with expectations; we expect to see multiple opportunities for growth later this year.

We have built significant traction in the packaging industry over the past several quarters, and we’re supporting it with intensified marketing of our packaging solutions this year, which we expect to be a major growth driver going forward. In the last few days, we were at Pack Expo in Chicago, the industry’s largest packaging event of the year. We showcased our most advanced mobile platforms for the industry. Adept’s MT400 robot powered by both mobile robot motivity core controls and software and our newest automation cell dedicated to the packaging industry, the Adept Packaging Automation Cell, or Adept PAC. Response from customers was tremendous and provides strong validation of the pending convergence of packaging and logistics, a market that Adept is uniquely qualified to address.

The MT400 is our first product to be introduced that incorporates automated guidance technology for mobile robots, and independently navigates, performs tasks, speaks, responds and carries out other jobs automatically, on demand, and the motivity core technology reduced the cost and complexity of installation, compared to traditional AGV technology, which had historically been an obstacle in increasing adoption rates among manufacturers.

The Adept PAC is a platform for next generation type B primary packaging applications. It requires both flexible and sanitary processing. It is integrated with best in class for their product, including the Adept Quatro, the world’s fastest USDA accepted robot and addresses some of the long standing challenges associated with flexible automation, such as deployment, time, and integration costs.

While the packaging industry continues to move away from manual labor and outdated packaging machinery, these latest platforms place us in a very strong position to benefit as the demand for more dexterous, flexible, and affordable robotic solutions will increase substantially. We will also be attending the upcoming packaging exposition in Paris, Emballage 2010, which showcases the world’s most sophisticated packaging solutions. We are confident our solution will be among best in class available, driving new business opportunities as we go forward.

Activity in Asia continued to be strong in Q1, and during the quarter we began taking steps to leverage the momentum that began over the last few quarters. As a result of our increased customer base, and the future opportunities we see in this geography, we’re opening a sales and service office in China, with possible plans to expand into engineering and manufacturing. This is a significant and strategic move for Adept that underscores our confidence in future activity in this region.

Business in France, which consists mostly of packaging for food and consumer goods remains a major market for Adept, though our Q1 sales reflect the normal European summer seasonality. In Germany, we’ve seen more activity across multiple markets including industrial, automotive, and packaging. In Q1 we received an order for 100 robots to be shipped over the next year from a German solar equipment OEM. While solar remains a slow growth market overall, we believe we will see an uptick in revenues on an annual basis, and are well positioned to benefit from this market when it ultimately becomes a mainstream and fast-growing industry.

In closing, we are pleased with the progress Adept is making in our core markets, as well as some new markets and opportunities being opened as a result of our very successful integration with MobileRobots. We are in the midst of our seasonally weakest period, but believe we will have a strong second half due largely to strength in packaging. Our financial model remains strong, and vastly improved over previous years and we will continue to manage cash and operating expenses, while leveraging product investments across all of our target markets. I’ll now turn the call over to Lisa for review of our financials.

Lisa Cummins

Thank you, John. Revenues for Adepts fiscal 2011 first quarter increased 25% to $14.6 million, from $11.7 million from Q1 2010, and declined 12% from $16.5 million in the prior quarter. The sequential decline in revenue is in line with normal seasonal patterns, as we work through our typically slower first half of the year.

By business segment, robotics revenue, which represents sales of our intelligent robotic systems and vision guidance technology and motion controlled software was $11.9 million for the quarter, compared to $9.5 million in the same period last year, and $14.1 million in Q4 fiscal 2010.

Looking now at our services and support business, revenues in Q1 2011 were $2.7 million, compared to $2.2 million in Q1 2010, and $2.4 million in the prior quarter. Looking at revenue by region, European sales were 38% of total revenue in Q1 2011. US sales were 32% of revenues in Q1, and Asian sales were 29% of revenue.

Turning now to gross margins, for the fiscal 2011 Q1, reported gross margin was 44% of revenue, compared with 45% in Q1 2010, and 42% in the prior quarter. Our margin this quarter was positively impacted on a sequential basis by a shift in product mix as well as fluctuations in the Yen and Euro.

Turning to operating expenses, OPEX for the quarter was $7 million compared to $5.5 million in Q1 2010 and $6.9 million last quarter. The annual increase in operating expenses was driven largely by the company’s stock compensation expense, related to the acquisition of MobileRobot, as well as restoration of full salaries to employees.

We recorded an operating loss of $638,000 in Q1 2011, compared with an operating loss of $209,000 in the same period last year, and $59,000 in Q4 2010. GAAP net loss for the quarter was $1.1 million, or $0.12 per diluted share, compared to a net loss of $82,000 or $0.01 per diluted share for Q1 2010 and a net loss of $186,000 or $0.02 per diluted share in the previous quarter.

Adjusted EBITDA, which excludes interest earned, depreciation, amortization, taxes, merger and acquisition expense, and stock option expense, was $203,000 in Q1, compared with an adjusted EBITDA of $693 in fiscal Q1 2010, and $992,000 in the previous quarter.

Turning now to the balance sheet, Adept ended the quarter with cash and cash equivalent of $7.6 million, compared with $8.6 million at the end of June. Accounts receivable were $12.2 million at the end of September, compared with $12.7 million at the end of June. Accounts payable were $8.5 million which compared to $9.4 million at the end of the last quarter.

Inventory levels net reserves were $10.6 million at the end of Q1, compared with $9.7 million at the end of June. The increase in inventory is a result of minor delays in certain programs that shipped after the quarter ended. With that, I will now turn the call over to the operator for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). And I’m showing there’s no questions in the queue. I’ll turn it back over to management for closing comments.

John Dulchinos

I’d like to thank everyone who joined us on this call. We feel great about the progress we made this year, and look forward to speaking with you when we report our Q2 results.

Operator

Pardon me, Sir. We do have a question that queued up.

John Dulchinos

Okay. I take that back then. Who’s the question from?

Operator

The first question comes from Chris Thomson with MindShare Capital. Please go ahead.

Chris Thomson – MindShare Capital

Just made it under the wire there. How are you guys doing? Hey, I understand that you said orders were flat quarter or quarter, and up 37% year over year, is that correct?

John Dulchinos

Yes, it is.

Chris Thomson – MindShare Capital

Okay, I don’t have the year ago numbers, so I guess I’m just kind of curious. If you could, tell us if the book to build in the quarter was above or below one.

John Dulchinos

We don’t publish that information. I can tell you that normally in a first quarter, we generate a negative book to build, because the – we have a large segment of our business out of Europe, and in Europe they’re usually off a portion of the quarter. So typically, Q1s are not healthy booking quarters. I’d say all in all we’re pleased with the results, but we don’t formally publish a book to build number.

Chris Thomson – MindShare Capital

Okay, how will you – can you give me a qualitative sense of how you’re feeling about order patterns for this quarter so far?

John Dulchinos

I think – I guess I can just speak back to the Q1. I think we’re pleased with the results. I think it’s – if I look at it, what’s most exciting to us is some of the recovery we’re seeing in Germany, which is historically been a very strong region for us, it took a pretty big cutback when the economy turned down, and some of the kinds of orders we’re getting out of Germany now are reminiscent of the kinds of orders we were getting in the last cycle, which kind of reflects that there’s been an easing of capital restrictions in Germany. So I think to me, that’s a positive sign that we’ve got to start looking out into the balance of the calendar year, and certainly as we look into the spring and summer of next year.

Chris Thomson – MindShare Capital

Okay, that’s helpful. And in terms of the Asia growth, do you see more of a linear pattern there, or is there some acceleration over the last couple of quarters?

John Dulchinos

Well, any – I think when we look at Asia we take disk drive and we kind of park it off to the side, because the disk drive industry is a very cyclical industry and can dwarf other things. If you take that aside, you look at the core growth in Asia, we’re making some excellent progress. What – you know, the two kind of driving industries for us, outside of disk drive are solar and packaging, and you know, in both they’ve shown steady growth over the past years, so on the strength of that, we’ve decided that we’re going to make this adjustment and go direct in China, which I think will be very positive on our go forward numbers.

Chris Thomson – MindShare Capital

Okay, sounds good, thanks for your time.

Operator

Thank you. (Operator Instructions) and I’m showing there’s no further questions in the queue. I’ll turn it back over to management.

John Dulchinos

Okay. Well, again, thank you for joining our call. We feel good about what we’re doing here, and we look forward to speaking with you again at the end of our second quarter, at the February conference call. Thank you.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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